2015 annual conference: single-family financing dialogue september 28, 2015 managing unprecedented...

2015 ANNUAL CONFERENCE:SINGLE-FAMILY FINANCING DIALOGUE

September 28, 2015

Managing Unprecedented Diversity and Opportunities for HFA Single Family ProgramsPresented by Ansel Caine

HFA Single Family Funding Activity 2012 - Present

Caine Mitter Single Family Activity

2012 2013 2014

$422 mm$396 mm

$527 mm$515 mm

$1,629 mm$309 mm

Jan-Aug 2015

$1,168 mm$121 mm

2012 2013

50%50%

67%33%

■ MRB ■ MBS Sale

Source: “Evolving Mortgage Funding Strategy Has Mixed Impact on Business Models”, Moody’s Investors Service, June 30, 2015

All HFAs

Issuance activity where Caine Mitter advised on MRB sale or managed pipeline / bid MBS

2014 Early 2015

75%25%

74%26%

■ MRB ■ MBS Sale

Loan Program

Greater variety of HFA single family loan products

Broader universe of HFA borrowers

Funding / Hedging Options

Multiple funding options in both the bond and TBA markets

Wide range of hedging strategies to manage pipeline interest rate risk

Expanding broker/dealer relationships

More Single Family Financing Options

Examples of Single Family Options That Are Working

Loan Programs Funding / Hedging Options

Below Market Interest Rate

Down Payment Assistance

MCC

Conventional

Government

First-Time Homebuyer

Non-First-Time Homebuyer

Refi

Low/Moderate Income

Not Income Restricted

Traditional MRB

VRDO

Floating to Fixed Swap

MBS Sale Whole Loan Sale

FRN Direct Purchase

Zero

Pass-Through MRB

TBA

Unused Bond Proceeds

Uninvested Cash

Loan Program and Funding / Hedging Compatibility

Loan Programs Funding / Hedging Options

Below Market Interest Rate

Down Payment Assistance

MCC

Conventional

Government

First-Time Homebuyer

Non-First-Time Homebuyer

Refi

Low/Moderate Income

Not Income Restricted

Traditional MRB

VRDO

Floating to Fixed Swap

MBS Sale Whole Loan Sale

FRN Direct Purchase

Zero

Pass-Through MRB

TBA

Unused Bond Proceeds

Uninvested Cash

MRB Qualified Mortgage w/ DPA

All Funding Options Compatible

Loan Program and Funding / Hedging Compatibility

Loan Program Funding / Hedging Options

Below Market Interest Rate

Down Payment Assistance

MCC

Conventional

Government

First-Time Homebuyer

Non-First-Time Homebuyer

Refi

Low/Moderate Income

Not Income Restricted

Traditional MRB

VRDO

Floating to Fixed Swap

MBS Sale Whole Loan Sale

FRN Direct Purchase

Zero

Pass-Through MRB

TBA

Unused Bond Proceeds

Uninvested Cash

…Add an MCC… …TBA Program Compatible

Loan Program and Funding / Hedging Compatibility

Loan Program Funding / Hedging Options

Below Market Interest Rate

Down Payment Assistance

MCC

Conventional

Government

First-Time Homebuyer

Non-First-Time Homebuyer

Refi

Low/Moderate Income

Not Income Restricted

Traditional MRB

VRDO

Floating to Fixed Swap

MBS Sale Whole Loan Sale

FRN Direct Purchase

Zero

Pass-Through MRB

TBA

Unused Bond Proceeds

Uninvested Cash

…Remove MCC; Add Below Market Interest Rate Target…

…MRB Compatible; Zeros Used to Achieve Full Spread

Other Important Considerations

Loan Program

Limitations Based on Servicing Structure

- HFA services (w/ or w/o sub-servicer)

- Multiple bank servicers

- Single master servicer (bank or HFA)

Down Payment Assistance Structure- Loan vs grant

- Amortizing vs due on sale

- Interest bearing vs zero percent

- Funding source

Non-Profit Entity Competition- No MRB code-compliance

- Streamlined operations

Lender Participation

Funding / Hedging Options

Best Execution- Which funding option offers the

best return?

Specified Pool Value- Loan balance, CRA, current issue

month pay ups

Single Issuer vs Multi-Issuer Pools

Qualified Hedge Identification

Cost Hedging / Negative Arbitrage

Access to Warehousing Funds

Availability of Volume Cap

Risk Tolerance for Variable Rate Bonds and Interest Rate Swaps

Navigating All of the Options: Lending

Lending Considerations for Single Family Product Selection:

What are the most effective loan products?- Keeping a simple vs diverse product portfolio for broad lender-base

How will lender participation be built?- Marketing, financial incentives, degree of flexibility

- Borrow and adapt ideas from successful homeownership programs

How will the interest rate be set?- Volume vs income on each loan

- Funding / hedging costs

Will MRB Code Compliance be Required?- Is there competition from non-profit entities?

- Is MRB funding attractive enough to get mortgage rate down?

Navigating All of the Options: Funding

Present Value Economics by Funding Source

100% PSA 200% PSA 300% PSA-0.5

0.5

1.5

2.5

3.5

4.5

5.5

6.5Traditional MRB

MRB PAC / Swap

MRB Pass-Through

MBS Sale

Notes Loans being funded are

market rate, government insurance, with 3.0% DPA

MRB executions based on current rates

Traditional MRB is level debt structure with back ended, 5yr PAC @ 100% PSA

MRB PAC/Swap is level debt structure with back ended, 5yr PAC @ 100% PSA, 33% swapped VRDOs

Vehicles for Generating Annuity Income

Mortgage Revenue Bond Programs

- Ongoing spread keeps generating fees

- Targeting high rate bonds by cross calling or using excess revenues will increase profitability

TBA / MBS Secondary Market Programs

- Upfront gains can be used to invest in the MBS program

- If an MBS sale is the best present value execution, then the long-term returns will be better than the spread generated from mortgage revenue bonds

- Cash intended for MBS investment is a hedge for program and lowers overall program cost

- MBS investments can be used to collateralize an existing bond indenture or fund uninvested reserves

Ansel Caine

Caine Mitter & Associates Incorporated

(212) 686 - 8820acaine@cainemitter.com

225 West 35th Street, Suite 900New York, NY 10001